Pectra Upgrade: Paving the Way for Ethereum’s Scalability and Mass Adoption

Pectra combines the Prague and Electra upgrades, designed to expand wallet capabilities and make Ethereum more efficient.

The large-scale upgrade is activated on May 7. 

Pectra, in particular, brings smart contract functionality to familiar wallets and allow validators to stack more than the current 32 ETH limit - up to 2,048 ETH.

What is Pectra?

Pectra is formed from the names of two previously planned updates Prague (for execution level) and Electra (for consensus level).

”The Pectra update plays a key role in the evolution of Ethereum, and the involvement of the developer community takes the network's capabilities to a higher level,” noted analysts at CoinGecko.

The enormity of the upgrade is hinted at by the long list of EIPs being prepared for implementation as part of the hardfork:

These EIPs include improvements in the context of account abstraction (ACA), make significant changes to validators, and aim to improve overall network performance.

Among the most notable proposals:

• EIP-2537 - introduces precompilation for BLS12-381 elliptic curve operations. This speeds up and cheapens operations with BLS-signatures, increasing the availability and performance of Ethereum validators, and reducing gas costs;
• EIP-2935 - implements storing hashes of previous blocks in dedicated storage slots to improve the efficiency and reliability of Ethereum data validation in the context of the transition to statelessness technology;
• EIP-7002 - facilitates faster and more convenient withdrawal management for validators, creating more opportunities in the areas of staking and restaking;
• EIP-7251-allows validators to steak more than the current 32 ETH limit - up to 2048 ETH. This allows node operators to reduce the number of nodes under management;
• EIP-7594 - introduces PeerDAS (Peer Data Availability Sampling) protocol designed to optimize L2, transaction processing and improve network scalability;
• EIP-7702 - introduces a new transaction type that will allow Ethereum account addresses to function as smart contract wallets for the duration of a transaction, followed by restoring the original state; 
• EIP-7692 is a set of proposals from 11 different EIPs aimed at improving the efficiency of deployment and execution of smart contracts, specifically by optimizing gas costs for certain operations.

EIP-3074 vs EIP-7702

Benefits and pitfalls of the EIP-3074

One of the most important components of the future update was supposed to be EIP-3074, which allows bringing smart contract functionality to conventional cryptocurrency wallets. In particular, it was supposed to allow users to merge transactions and sign them in a single step.

EIP-3074 presents the idea of ”delegating control of EOA to a smart contract.” Among the main objectives of the proposal: 

• Developing the concept of sponsored transactions (sponsored transactions);
• improving the user experience (UX)when using a regular Ethereum account (address from a public/private key pair).

Sponsored transactions allow for the separation of the account from which gas is paid and the account that actually performs the transactions with the ERC-20 standard tokens. For example, DEX can include the cost of gas in the trading fee by paying on behalf of the user. By doing so, the latter has the ability to opt out of owning ETH if he or she does not use it.

In simple words, the proposal would allow grouping transfers (batching) to save time and money, as well as paying fees for other users. 

EIP-3074 defines two new transaction codes for Ethereum:

• AUTH - specifies an address that can send a transaction on behalf of the user;
• AUTHCALL - makes a smart contract call to the specified address on behalf of the user.

AUTH validates the user's signature and intended action, and AUTHCALL invokes the target contract for execution with ”sender address as caller”. 

For example, users typically need to manually sign a message each time they interact with an dapp (token exchange or token steaking). With the EIP-3074, only one signature is required - AUTH and AUTHCALL automatically perform all subsequent functions.

Other innovations include recovery of lost keys. To use the tool, users must transfer ownership of their assets to an initiator contract through a digital signature that performs transactions and function calls on their behalf.

Despite a number of benefits like ”social” recovery, advanced transactions and improved UX, some community members have criticized EIP-3074. For example, DeFi developer Llama under the nickname 0xngmi called the main drawback that ”it will now be possible to completely deplete an address, all tokens, all NFTs, all DeFi positions with just one bad signature.”

Safe representatives concerned that the proposal does not have a ”clear path to full account abstraction” and is having a negative impact on its adoption.

EIP-7702: an alternative from Vitalik Buterin

To provide more security, Ethereum co-founder Vitalik Buterin has proposed a slightly different approach. EIP-7702 involves creating a new transaction type, similar to EIP-2930, that is compatible with EIP-3074 processes by converting them into optimized code.

The enhancement will allow Ethereum account addresses to function as smart contract wallets for the duration of the transaction, followed by restoring the original state.

According to Buterin's idea, AUTH and AUTHCALL are replaced by simpler check and execute functions associated with EOA. This change preserves operational integrity as well as improves the efficiency of the authorization process.

According to the developer, such an approach would require minimal network changes because EIP-3074 maintains direct compatibility with the final account abstraction.

In addition, EIP-7702 allows the EOA to temporarily act as a contract, ensuring compatibility with the current architecture.The alternative received positive feedback from the community, and it was soon decided to replace EIP-3074 with a new proposal. The latter was labeled by Polygon developer Jarrod Watts as ”one of the most impressive changes that will ever happen to Ethereum.”

He added that once the new functionality is implemented, ”your existing EOA will be able to execute any smart contract code.”The specialist also described the main drawbacks of EIP-3074, including the possibility of an attacker gaining control of all user funds.

EIP-7251

The success of The Merge, the rising price, and the development of the Ethereum ecosystem have led to an increase in the number of validators involved in consensus enforcement. Their total number is approaching the milestone of 1.5 million, and the aggregate value of blocked ETH exceeds $140 billion.

While the abundance of validators has strengthened the security of the blockchain, some researchers have expressed concern about the possible impact of this growth on the stability of the network.

EIP-7251 (or MaxEB, MAX_EFFECTIVE_BALANCE) aims to address the problem of ”excess validators”. It proposes to increase the maximum steak size from 32 ETH to 2048 ETH (while maintaining the minimum threshold of 32 ETH).

For example, a large operator with 2048 ETH can combine 64 validator sets into one. At the same time, an individual staker with 45 ETH will be able to manage one set, cited in a contribution from the Unchained project.

Thus, EIP-7251 proposes to reduce the number of validators while maintaining the high economic security of the Ethereum network. Among other features of the proposal:

• Large operators can combine sets of validators without exiting and re-entering the protocol;
• adding partial withdrawals at the execution level - for example, a validator with 200 ETH can withdraw 50 ETH without fully exiting;
• Adjustable effective balance ceiling: you can customize the maximum amount that activates partial withdrawals.

”Pros and Cons

Among the benefits of the new proposal:

• solving consensus level problems: reducing the number of validators reduces network load and latency;
• preparing for future updates such as single-slot finalization and the PBS (proposer-builder separation) solution. The latter limits the rights of validators in the block formation process and creates a new class of participants who shape the order of transactions;
• flexibility of the individual staking process;
• reduction in the number of validators, which promotes efficiency and reduces operating costs.

Arguments against:

• raising the ”ceiling” of the maximum steak increases the risk of slashing (it increases linearly with the amount of blocked ETH);
• some community members are concerned about the risks of centralization and a potential ”51% attack”.

Thus, EIP-7251 proposes to significantly reduce the number of validators without drastic changes in the network of the second most capitalized cryptocurrency. However, the community should carefully work through all aspects to avoid negative consequences.

What after Pectra?

While nothing has been finalized yet, the Ethereum community is considering implementing Werkle trees in the Osaka update that will follow Pectra.

Verkle trees are an algorithm for structuring data in a protocol, similar to Merkle trees. Its main difference is that each node uses a special type of hash, called a vector commitment, to commit child nodes.

The integration of the new data structure is part of the Ethereum roadmap. Verkle trees are scheduled to appear in the third phase called The Verge.

Specifically, the solution optimizes onchain information storage and node volume. Buterin described its key feature as ”much more efficient proofs in terms of size,” as the mechanism allows any block to be verified using only the data it contains.

This approach to verification significantly reduces the technical requirements for validators, which in the long run will lead to a greater diversity of nodes and greater decentralization of the network. 

The Ethereum co-founder emphasized that the update will also improve the experience for solo-stakers by optimizing the user interface and adding new functionality for the client software.

The next phase after The Verge will be The Purge. It is aimed at simplifying the network structure and reducing the load on nodes.

Conclusion

The Ethereum ecosystem is continuously evolving. It consistently leads in TVL, and the underlying cryptocurrency is still the second largest in terms of capitalization.

Ethereum's next two updates promise to significantly improve the network's usability for both users and developers. The platform will become more versatile, capable of meeting a variety of user needs.Vitalik Buterin is conviced that the next five years will be ”crucial” for ether in the context of its mass adoption and acceptance by the ”real world.” Future upgrades will help Ethereum cope with growing demand, integrate with other networks and introduce new features, keeping the platform at the forefront of blockchain innovation.